When I first got into credit cards, I thought it was really dumb to pay an annual fee. Why would I pay to have a credit card? I’m already paying every time I use the card! Granted, this thought process also came at a time when money was much tighter than it is now. However, I’ve also learned that depending on how you spend money, it could actually make you money to have an annual fee.
How can you get paid to have an annual fee on a credit card? That’s easy, the benefits!
Credit card companies are in the business to make money, they realize that different people have different amounts of money they feel comfortable spending. For some, it makes sense to not have a credit card with an annual fee, for others, it makes sense to have a $95 annual fee, and for others, it makes sense to have a very large $500+ annual fee. The credit card companies have to spread their benefits out between the different cards to make it worthwhile for the people paying the annual fees, but also good enough for the people that don’t.
There’s two good examples I can give as to times it makes sense to pay an annual fee. The first are cards like the Blue Cash Preferred from American Express, and the second are cards like the World of Hyatt credit card.
The Blue Cash Preferred has a $95 annual fee, and earns 6% cashback on groceries (6k cap) streaming services, 3% back on gas and transit, and 1% everywhere else. Not even taking into account the sign up bonus, the card can still pay pretty well if your spending falls into these categories. Just the groceries themselves, if you are able to spend the $6,000 per year, or $115 on groceries per year, that alone would earn you $360. If we add in gasoline expenses, at say 10,000 miles per year in a car that gets 25 miles per gallon, we would buy 400 gallons. At $3.00 a gallon, that would return a total of $36.
Now if we take the $360 we earned from groceries, the $36 from gas, and subtracted the $95 annual fee, we’d earn over $300, for just buying what we normally would. As a comparison, the same spend on the no annual fee Blue Cash Everyday would give us $188 dollars (3% for groceries and 2% for gas). That’s an extra $120 in our pockets for doing absolutely nothing different.
For the next example, I’m using the World of Hyatt credit card, however, it can apply for any hotel credit card that offers a free night. The World of Hyatt credit card has a $95 annual fee, and will reward you with a free night every anniversary year. So you wont get it the first year, but you will every year after that.
Without even taking a look at the reward categories on the card (which are pretty nice on their own), there’s a ton of value here. The free night can be used on hotel rooms that can cost anywhere between $250-$400 a night, and all you’re paying is $95 for that room. Even if you make the case of you wouldn’t normally spend $400 on a hotel room (believe me, I wouldn’t either), would you pay $95 for a hotel room for a night? Even in many motels, you’ll end up paying that anyway. For me, my own personal rule is spending about $150 a night on a hotel room is justifiable. By that logic, I’m getting a better hotel room for less money; that’s a win-win!
If we took a look at the reward categories on top of that, the Hyatt card earns 4x back on Hyatt properties, 2x back on restaurants, airline tickets, local transit, and gym memberships and 1x everywhere else. Because the points can be so valuable (1.8 cents per point), it wouldn’t even be a bad option to use as an everyday card. Besides, spending $15,000 within a year can get you another free night as well!
Overall, it’s important to look at things with an open mind. While it’s true that some credit cards do charge an annual fee, the credit card companies have to entice you to actually pay that fee. The fee helps pay for the benefits that they offer on the card itself such as a high reward categories (BCP), or benefits like a free hotel night (World of Hyatt). When you’re taking a look at a credit card, consider doing the math to see if you can get value from the higher annual fee version such as we did above.
Are there any cards you pay an annual fee for? Let us know down in the comments below which card that is, and how much of a benefit you get from the card!